All-weather investing

Seeking good positive returns.

Come rain or shine.

Ruffer provides investment management services for institutions, pension funds, charities, financial planners and individual investors.
Ruffer LLP
Select Location
UK
Europe
Australia
US
Asia
Middle East
Channel Islands
Rest of world
Type of investor
Individual investors
Institutional
Charity
Family office
Financial planner
Individual investors
Institutional
Charity
Wholesale
Institutional
Institutional
Institutional
All investors
All investors
London
80 Victoria Street
London SW1E 5JL
Edinburgh
31 Charlotte Square
Edinburgh EH2 4ET
Paris
103 boulevard Haussmann
75008 Paris, France

Book review – Into Thin Air

Thinking beyond the summit
Hermione_Davies
Hermione Davies
Investment Director

There are plenty of excellent books about investing. But sometimes the best advice can be found in unlikely places.

Into Thin Air tells the story of an ill-fated assault on Everest in 1996. The American climber-writer Jon Krakauer was invited to join a high-profile expedition, to describe the growing commercialisation of the mountain.

His team (and two others) set out for the summit in perfect conditions. The mountain was crowded: there were queues. 19 of the group reached the top, but only 12 made it back down again. Of the six in Krakauer’s party, just two survived. In all, a dozen climbers perished that year – the worst death toll since Hillary and Tenzing first reached the peak in the 1950s.

THE NEGLECTED LESSON

Krakauer’s book is a brilliant, pulse-racing read. And it carries many neglected lessons.

Perhaps the most powerful – the top of the mountain is only halfway there. As Rob Hall, the leader of Krakauer’s expedition, put it: “Any bloody idiot can get up this hill. The trick is to get back down.”

High mountains are wonderful when the sun shines and the summit seems within easy reach. But it only takes a small change in the weather to obscure both the way ahead and the way down. Crucially, the risks do not decrease as you become more experienced. If anything, the opposite is true. In Krakauer’s words: “To succeed you must be exceedingly driven, but if you’re too driven you are likely to die… When presented with a chance to reach the planet’s highest summit, people are surprisingly quick to abandon good judgement.”

That is why Everest is so dangerous. The parallel with the financial markets almost paints itself. The way up is fun; the way down can be lethal. And experience is no guarantor of survival. This lesson is all the more important after a near 40-year bull market – many investors have only known a market that trends ever-higher, one that, when it goes down, does so only briefly.

ENTER THE AMATEURS

For some time, Everest was for elite climbers only. Then bottled oxygen and improved equipment allowed a broader range of people to have a go. Things really changed in 1985 when Dick Bass, a wealthy Texan with limited climbing ability, was pretty much carried to the top by a renowned guide. Suddenly, Everest was becoming nothing more than a top notch life experience.

This led to a rush of interest. But the mountain had not been tamed. There was still a ‘death zone’ above 25,000 feet, where the air holds one-third of the oxygen a human needs. Lung collapse, hypothermia, frostbite and a host of other dangers are only an accident away.

It sounds like a moment of market euphoria.

EUPHORIC DANGERS

To re-present the analogy: the summit is the short-term goal, but the long-term objective – getting both up and down safely – matters more. For climbers, the moment of euphoria on reaching the top contains grave dangers. In Krakauer’s case, he had used nearly all his oxygen; he barely had time to take in the view. Yet others were determined to relish the moment, unfurling flags and snapping photographs, using up time they could no longer afford. None imagined what was about to befall them. It sounds like a moment of market euphoria.

In the inquest, people questioned how expert guides could have led inexperienced amateurs – each of whom had paid up to $65,000 to be taken safely up Everest – into such a disaster. The answer lay in the question itself. Rob Hall, the most knowledgeable guide on the mountain, was worried all along about overcrowding. Hall feared that his own ascent might be put at risk by the need to rescue some of the unqualified groups he saw setting off. He thought it “pretty unlikely” that they would get through the season without “something bad” happening up there.

No-one was more respected than Hall. He ran “the tightest, safest operation on the mountain, bar none.” So what happened?

Much of it came down to the commercial pressures of running a prestigious operation. On this occasion, it led Hall to break his own rules. He always emphasised the importance of having a predetermined turn-around time on summit day, even if the summit had not been reached. He was emphatic enough that five of his clients turned themselves back when they realised they would not make it by his deadline. But on this occasion, Hall was still struggling to get some clients to the top hours after the deadline had passed.

One of the biggest factors in Hall’s success was also the simplest

His fears were not groundless. Clients tended to believe they were paying to get to the top – in effect, buying a summit. Guides on previous expeditions had been sued when their clients had not made it to the summit. And, since Hall had turned his whole group back the previous season, failing to reach the summit again would have hurt his reputation. There was another experienced guide on the mountain with a large fee-paying group – neither man wanted to fail while the other succeeded.

THE PERILS OF LUCK

In Krakauer’s account, one of the biggest factors in Hall’s success was also the simplest: luck. As one of the climbers said: “Season after season, Rob had brilliant weather on summit day. He’d never been caught by a storm.” Years of good luck had given him a sense of security that tempted him to take excessive risk.

It is the kind of observation that an investment guru might make. As Howard Marks put it: “While it might seem counterintuitive, the best decision-maker isn’t necessarily the person with the most successes, but rather the one with the best process and judgement… You have to avoid the risk of ruin, and this requires solid discipline.”

It is always tempting to trust to one’s lucky star – indeed, this is almost a textbook definition of irrational exuberance. You might get lucky. Nine times out of ten, the thing you fear won’t happen. But the tenth time? Disaster.

I myself once climbed not Everest, but Mont Blanc. It was a two day ascent. On the second morning, we rose at 3.00am, climbing a steep slope in darkness. Two hours from the top, it started to snow. Our guide insisted we had to turn back. No ifs, no buts. The snow would cover our track, making the descent impossible.

Of course we were disappointed. We did not make the summit. We never saw dawn breaking over the Alpine chain. But we did live to tell the tale.

Ruffer Review 2021
Download our 2021 edition of the Ruffer Review. In it we explore the fate of traditional balanced portfolios, our latest big picture thinking – on regime change and inflation – as well as fresh perspectives on trust, belief and behavioural bias.
Read
Starlings and casinos
Prospect theory, complex systems research and the work of two physicists can help investors make better decisions.
Read

This book review was originally published in the Ruffer Review 2021.
The statements made therein reflect the personal views of the individual author.

London
80 Victoria Street
London SW1E 5JL
Edinburgh
31 Charlotte Square
Edinburgh EH2 4ET
Paris
103 boulevard Haussmann
75008 Paris, France